Latvia: benefiting from the euro, facing new challenges

Latvia appears to be already reaping a number of benefits from its changeover to the euro in January 2014. Enhanced competition, bank intermediation and the low-interest rate environment are bringing immediate and long-term benefits to the economy. Moreover, despite concerns that traders might take advantage of the introduction of the new currency to raise prices, consumer price inflation has turned out lower than expected. However, the successful changeover to the euro should not give ground for complacency as policy makers are still facing challenges, such as how to cope with accelerated labour-cost growth at a time when the external environment is worsening.